Tag: fixed costs

Ofcom, the communications regulator, is keen to encourage the spread of super-fast broadband through investment in fibre-optic cabling. So far, super-fast broadband is available to around 46 per cent of the UK population. Both Virgin Media (formerly Telewest and NTL) and BT have invested in fibre optic cables, but Ofcom is keen to extend the use to rival companies.

It proposes two methods: the first is to give competitors access to BT’s cables; the second is to allow competitors to install their own cables using BT’s ducts and telegraph poles. In both cases BT would charge companies to use its infrastructure and would be free to set prices so as to ensure a ‘fair rate of return’.

The articles below consider this ‘solution’ and its likely success in developing competition in the super-fast broadband market through competition, or whether BT’s and Virgin’s market dominance will continue to the detriment of consumers. You can also find links below to the Ofcom report and summaries

Articles
BT welcomes Ofcom’s fibre access plans Reuters, Kate Holton (23/3/10)
Ofcom to encourage super-fast broadband Business Financial Newswire (23/3/10)
Ofcom tells BT to open its fibre network ShareCast (23/3/10)
Ofcom wants BT to open up infrastructure Financial Times, Philip Stafford (23/3/10)
Ofcom push to give broadband rivals access to BT tunnels Financial Times, Tim Bradshaw and Andrew Parker (23/3/10)
BT UK Pushes Ofcom to Open Virgin Medias Broadband Cable Ducts SamKnows, Phil Thompson (23/3/10)
BT welcomes Ofcom’s fibre access plans ISPreview, MarkJ (8/3/10)

Report and summaries
Summary: Enabling a super-fast broadband Britain Ofcom (23/3/10)
Review of the wholesale local access market: full document Ofcom (23/3/10)
Review of the wholesale local access market: summary Ofcom (23/3/10)

Questions

  1. What forms does competition take in the broadband market?
  2. What are the barriers to entry to the super-fast broadband market?
  3. Are fibre-optic networks a natural monopoly? Explain the significance of your answer for competition in the super-fast broadband market.
  4. Will Ofcom’s desire for BT to get a fair return on its wholesale pricing of access to its cabling, ducts and telegraph poles be sufficient to ensure effective competition and that profits are not excessive?
  5. Explain whether it would be in consumers’ interests for competitors to be given access to Virgin’s cables and ducts.

The recession of the past few months has taken its toll on organic farmers. Until recently, the industry was booming as consumers switched to products perceived as greener, healthier and more ethically produced. Now, as many consumers are feeling the pinch, they are switching to cheaper foodstuffs. The resulting decline in demand for organic food has turned profit into loss for many organic farmers. According to the first of the linked articles below, at least two organic farmers are leaving the movement each week.

But what will happen as the economy recovers and people start turning back to organic products? Given that it takes some two years to convert to organic standards, there could be supply shortages next year.

As UK shoppers tighten their belts, organic farmers feel the squeeze Guardian (11/4/09)
United Kingdom-Organic slowdown Farming UK (12/4/09)
Can the organics survive the current economy? Limerick Post (10/4/09)

Questions

  1. How close to perfect competition is the market for organic foods?
  2. What determines whether an organic farmer should continue in the market even though a loss is being made?
  3. What can you conclude about the income and price elasticities of demand for organic produce and the cross-price elasticity of demand for organic food with eating out?
  4. What is likely to happen to the market for organic food over the next two years?

Having secured the 2012 Olympics, we now have to work out how to pay for it. Recent news has indicated that the cost of hosting the Olympics has risen significantly from the original estimate. However, there is considerable debate in the media about what the real cost is. The figures given are massive, but what will we be left with after the games are over? How can we value these assets? The blog below from Evan Davis looks at some of these issues and discusses the real cost of hosting the Olympics.

Why do costs overrun? BBC News Online (16/3/07)
Real cost of 2012? BBC News Online – Evan Davis blog (15/3/07)

Questions

1. Identify five fixed and five variable costs of running the Olympics.
2. Discuss the value of the opportunity cost of hosting the Olympics.
3. List the direct and indirect benefits of hosting the 2012 Olympics in London.